Refrain on the Street is a 25 bps cut

The Street is out with its verdict. It’s expecting a 25 basis points cut in the repo rate — the rate at which banks borrow from the Reserve Bank of India (RBI) — in the April 17 annual monetary policy statement of the central bank.

Out of eight economists from as many organisations polled by DNA Money, an overwhelming seven expect a repo cut. However, most feel the figure would be less than what they had anticipated earlier.

“We had revised our rate cut estimates for FY13 because there is a strong upward bias on inflation. The increase in excise duty, freight prices and an expected fuel price hike will eventually seep into the system and outweigh the downward pressure on inflation,” said Samiran Chakraborty, chief economist, Standard Chartered Bank. Chakraborty puts Wholesale Price Index (WPI) inflation at 7.2% for FY13 compared with an earlier estimate of 6.5%.

“We adjust our estimate of WPI inflation at 8% for the major part of FY13 from 6.5-7% earlier, mainly due to the sharp jump in food prices, a hike in indirect taxes and rail freight and a likely increase in administered fuel prices,” concurred Sujan Hajra and Gautam Singh of Anand Rathi Financial Services in a report released on Thursday.

It was only after the last monetary policy action of the RBI that most economists have revisited their rate cut expectations. “We revised our rate cut expectations for the entire fiscal after RBI’s hawkish tone in the March review of the monetary policy,” explained A Prasanna, chief economist, ICICI Securities Primary Dealership.

In the March 15 monetary policy review, the central bank had said “recent growth-inflation dynamics have prompted the RBI to indicate that no further tightening is required and that future actions will be towards lowering the rates. However, notwithstanding the deceleration in growth, inflation risks remain, which will influence both the timing and magnitude of future rate actions”.

Crude remains another factor to watch out for. The recent jump in global crude oil prices, which will soon have a domino effect in terms of a rise in domestic diesel prices here, is also holding back the RBI. “Crude oil prices continue to remain elevated and the RBI has communicated that controlling inflation will be of higher priority,” said Shubhada Rao, chief economist, Yes Bank.

But interestingly, there are some who are on a different page altogether. These analysts do not expect a rate cut in April in the first place. “We have revised our expectations of a rate cut because inflationary pressures still exist. There is also a perception that RBI may not act in terms of rate cuts unless inflation comes down. We expect a rate cut in the June review of the RBI monetary policy,” said Madan Sabnavis, chief economist, CARE Ratings.